Buyer Power and Comparative Advantage

ABSTRACT This paper builds a two‐country oligopolistic competition model to capture the effects of buyer power on international trade. The lack of buyer power of home retailers does harm to the home country by decreasing the extensive margin at home. Thus, buyer power can be a part of the comparative advantage of a country. There are three sources of buyer power in our models. An increment of bargaining power of retailers facilitates specialisation towards the direction of comparative advantage unambiguously. A change in the number of home or foreign retailers generates different impacts on the extensive margins of domestic and foreign exports.